Positive Geared Units

[travelbug]

In my post I didn't mean to insinuate they are not there. I agree they are but you have to put in the time and energy (unless you pay the two posters finding them.) I know Nathan finds some amazing deals. People are skeptical of his purchases but I've seen some of them. It's a matter of being on the ground all the time.

Get off the computer Nathan, the sun is shining.

My unit in the city I purchased last year is now cash flow positive. It is a small 1 bedder in Potts Point. Yes it's small but I love it.

BTW with my interest rate locked in I'm positive for at least the first year on my new purchase. I'm conservative on rent and think it will get even more with the reno. Yeehah. (that's taking into account ALL costs). Interest calculated on purchase, reno, solicitors fees, stamp duty etc. I think it's cheating a bit to say your property is cash flow positive because you paid a huge deposit.

That would mean my other unit is cash flow positive big time because it has no mortgage tied to it.

 

[HomeBuyAU]

Hi, I have a unit now and I would like to understand or work out how I could make it Cash flow positive? The details are:

Type: 2 Bdr Unit with carport

Expenses:
Price: 220,000
LVR: 90% (How much I'm borrowing) on IO
Variable Interest rate: 5.6 for first year and then probably about 7+ by then.
Strata: $50 per week
Property Manager: ??? No idea yet, haven't got to that stage
General Purchase Expenses: Mortgage insurance, bank fees, legal fees, strata report and Stamp Duty etc
Other Expenses: hope not

Income:
Rent: Rented from Settlement at $260 per week on 1 year lease

So what would I need to do to get it to positive, I can't raise rent until 1 year so I guess I would need to place a certain amount of cash into the offset account?

 

[devo76]

Its the same in my area. (Shoalhaven. Not the city but not one horse town either).
Average rental returns are around 5.2 % so at first glance it would be hard to get positive or even neutral. But the last three properties i looked at are as follows

Duplex,2bedder and three bedder.
Sold for $258,000 and needed a $25,000 reno.
They are now renting for $500 pw combined
9% return

Old home in CBD on big subdividable block. Split into 3 units.
Could not sell for $300,000. I offered $270,000 $285 would have got it.
Current rent is $430 combined with room for improvement.
7.5% return or better

3/4 bedder with attched granny flat 1100 sqm corner block
Sold for $300 ish and renting for $455 soon to be $480
Plus a 400 sqm block on the back ready to be developed.
7.8% to 8.0% return


Now remember this is in a regional coastal city that is averaging 5.2% returns.
So they are out there hiding in with the other sales.

 

[skater]

And this one.

When was the last time something cost less than $200k in Sydney?

You need to qualify what constitutes "Sydney" I think.

I see them all the time too. They are out there. Remember Sydney is a big place.

 

[sash]

Lakemba, Wiley Park, Punchbowl, Berala.....

I'd love to see where this one is.

 

[RumpledElf]

You lot should come out here. Rental returns are just silly. The minimum rent on an old house is about $200 these days and old houses cost < $200k. Or you can build a new house for ~$170k and rent it for close to $300pw. There's 3 for sale at the moment that are positiveish (its much higher gearing if you build your own of course) - old one for $180k, $200pw rent with current tenants, and $220 and $240k that would rent in the high $200s each, but they are brand new builds and I think the owner has run out of money - they look a bit 'unfinished'. Also a 3br duplex at $130k that would also rent for close to $200pw with a little work. All of these have been for sale for a while because they are not 'perfect' houses ready to move into. Or worse, they're TENANTED. OMG, who would want to own a RENTAL. Ewww. Very pervasive attitude in the country.

Not sure how long the high rents will last for - its not a mining town, but they're building a tonne of wind farms which is pulling high-paid workers and their families into the town, and house prices are lagging behind rents.

 

[HomeBuyAU]

You lot should come out here. Rental returns are just silly..

Not bad & I have seen quite a few bargains around the Port Stephens coastal areas starting at lower priced homes in Raymond Terrace that can be purchased around $200k but bring in rent of up to $300 pw. There is also a lot of new industries and developments around the area. The same goes for the Port Stephens coast near Anna Bay/Nelson Bay and surrounding suburbs. Lot of new developments like supermarkets & bunnings stores going in etc. Then there is the new highway to Maitland which is already under way.

Still hoping to get some feedback on my last message....

 

[RumpledElf]

Still hoping to get some feedback on my last message....

Improve the unit, increase the rent, pay down the mortgage, or just rewind time a bit and get a cheaper one

Rent will go up with CPI over time and you'll end up positively geared eventually regardless.

 

[HomeBuyAU]

Improve the unit, increase the rent, pay down the mortgage, or just rewind time a bit and get a cheaper one

Rent will go up with CPI over time and you'll end up positively geared eventually regardless.

Yes I agree those would be the best ways to improve the return.

What I'm really wanting is to be able to work out a formula etc so I can calculate when or at what stage my unit can become v+?

So for example if I placed $xxxx amount into my offset account it would bring it to positive.

 

[The Y-man]

What I'm really wanting is to be able to work out a formula etc so I can calculate when or at what stage my unit can become v+?

So for example if I placed $xxxx amount into my offset account it would bring it to positive.

(rental income - sum of all expenses) / interest rate = break even loan amnt


So given your figures, you'd need to get you loan down to $156,000 by the time it hits 7% interest.

Not sure if you have covered off:
PM costs
Rates
Insurance
Repairs

Cheers,

The Y-man

 

[HomeBuyAU]

(rental income - sum of all expenses) / interest rate = break even loan amnt


So given your figures, you'd need to get you loan down to $156,000 by the time it hits 7% interest.

Not sure if you have covered off:
PM costs
Rates
Insurance
Repairs

Cheers,

The Y-man

ok thanks, that gives me a better idea now.

 

[Jack23]

mosoon, depending on the location you may be able to rent out the unit fully furnished.

1) You don't need to spend a lot of money on the furnishings (cheap and robust)2) furnishings can be depreciated while not reducing your cost base for CGT



I'm guessing a unit for $175k is a 1bed?? I think you'll find that the cheaper 1bed units will have the return reduced (from strata & rates) as a % more so than the pricier 2bed units.

Consider renting the furniture as an option

 

[travelbug]

Yes I agree those would be the best ways to improve the return.

What I'm really wanting is to be able to work out a formula etc so I can calculate when or at what stage my unit can become v+?

So for example if I placed $xxxx amount into my offset account it would bring it to positive.

I don't see the point. It's not REALLY positive. Moving the money from one loan to another will just give you the impression that one is positive.

I only call a property positively geared when the money that comes in is more than ALL the outgoings.

ie interest (on EVERYTHING I paid)
PM fees, strata, rates, insurance.

As mentioned my Potts Point unit is unencumbered and gets $285 a week rent so it's HIGHLY +ive by those standards. But REALLY it's neutral.